Silent Recession – Why California School Districts are ... · Silent Recession: Why California School Districts Are Underwater Despite Increases in Funding page 6 Funding for K–12

SILENT RECESSIONWHY CALIFORNIA SCHOOL

DISTRICTS ARE UNDERWATER

DESPITE INCREASES IN FUNDING

Kelsey KrausenJason Willis

APRIL 2018

© 2018 WestEd. All rights reserved.

Suggested citation: Krausen, K., & Willis, J. (2018). Silent Recession: Why California school districts are underwater despite increases

in funding. San Francisco, CA: WestEd.

This report was developed with funding from the Bill and Melinda Gates Foundation through the Smarter School Spending

project. The content of this paper does not necessarily reflect the views or policies of the foundation or the Smarter School

Spending project.

WestEd is a nonpartisan, nonprofit research, development, and service agency that works with education and other communi-

ties throughout the United States and abroad to promote excellence, achieve equity, and improve learning for children, youth,

and adults. WestEd has more than a dozen offices nationwide, from Massachusetts, Vermont, Georgia, and Washington, DC, to

Arizona and California, with headquarters in San Francisco.

Introduction 4

Purpose 5

Funding for K–12 Education in California 6

Figure 1. Increased pension expenditures outpace LCFF revenue increases in some districts 7

Fiscal Challenges 8

Pension Liabilities 8

Table 1. Large increases in K–12 districts’ pension contribution rates 9

Figure 2. Nearly every district in the sample is expecting large increases in

CalSTRS and CalPERS expenditures between 2016/17 and 2017/18 10

Special Education Costs 10

Costs Associated with Recruiting, Retaining, and Training Teachers 11

Employee Health Care Costs 12

Aging Facilities 13

Declining Enrollment 14

Table 2. Changing enrollment in sample districts, 2014/15 to 2016/17 15

Implications of the Silent Recession 17

Tradeoffs 17

Figure 3. Districts have varying degrees of control over rising fiscal pressures, and some

fiscal pressures have a disproportionate impact on district budgets 18

Figure 4. Increase in employee costs over time for California school districts 19

Deficit Spending 19

Figure 5. Sample districts’ expectations for future expenditures and revenues 20

Looking Ahead: Strategies 21

Increase Effectiveness 21

Increase Efficiency 21

Serve High-Need Students 21

Respond to Change 22

Use Data and Communication as Tools 22

A Path Forward 23

Appendix 24

Methodology 24

Limitations 24

Table A1. Breakdown of sample by district size 25

Table A2. Increasing cost of CalSTRS and CalPERS 25

CONTENTS

Silent Recession: Why California School Districts Are Underwater Despite Increases in Funding page 4

INTRODUCTION

1 http://www.lao.ca.gov/Publications/Report/3716 (The most recent projections from this report of the state’s Legislative Analyst’s Office

show projected increases under a “Growth Scenario”; the report also provides projections under a “Recession Scenario.”)

2 http://www.lao.ca.gov/Publications/Report/3549

“[I]T’S EXACTLY THIS SILENT RECESSION SCENARIO…. THOUGH WE ARE RECEIVING MORE DOLLARS EACH YEAR PER STUDENT, THE COSTS THAT WE’RE BEING SADDLED WITH ARE GREATER THAN THOSE REVENUES. SO, WE END UP IN A PERPETUAL CUTTING MODE.”

DISTRICT BUDGET OFFICER

Despite projected increases in state and local education

funding between 2017/18 and 2021/22,1 California school

districts face fiscal pressures that threaten to destabilize

school district budgets and force reductions in services to

students. Examples of these fiscal pressures include reduced

funding due to declining enrollment; the costs of upkeep

and renovations for aging school facilities; increasing special

education program costs; increasing employee health care

costs; and the costs associated with recruiting, retaining, and

training teachers, including ensuring competitive wages. Still,

for many California school districts, the most daunting fiscal

pressure is the rising cost of employee pensions, totaling a

$1-billion increase over the previous year in costs to districts

statewide in the 2017/18 school year alone.2

Many of these pressures on school district budgets are

largely hidden from public view because they do not take

the form of new services or programs and instead are part

of what is often referred to as the “cost of doing business.”

Furthermore, school district spending on employee pensions

is expected to nearly double between 2015/16 and 2020/21,

based on complicated retirement and earnings forecasts that

are not well understood by the public — or by many state

policymakers or district leaders. These costs create pres-

sures on district budgets and erode districts’ abilities to make

new investments in programs. They mark a new era of

fiscal constraint for California’s school districts — a Silent

Recession — which will likely force many districts to make

dramatic program adjustments and reductions or risk signif-

icant deficit spending, despite overall increases in K–12 fund-

ing provided by the state.

This paper suggests that despite efforts to help school districts

recover from the recent Great Recession by bringing school

district spending power back to pre-recession levels, growth

in expenses to maintain operations means that school

districts across the state are now experiencing the Silent

Recession. Although California’s education funding formula

provides revenues that grow incrementally each year, these

increases are not based on the actual growth in the costs

of operating a school. Consequently, some school districts

are experiencing cost increases that are outpacing revenue

increases. The fiscal challenges that this dynamic creates will

likely require school districts to find new strategies to prioritize

how they spend limited dollars and may lead to reductions

in investments in current employees and programs, as rising

costs effectively crowd out other investments. The Tradeoffs

section of this paper presents a conceptual framework for

school district leaders to use in considering the tradeoffs and

choices they may need to make. In particular, the framework

highlights the importance of focusing on budget strategies

that address areas in which districts have greater control

over expenditures and which have the potential to make a

substantial impact on district budgets.

http://www.lao.ca.gov/Publications/Report/3716




To explore the implications of the growing fiscal pressures in

a range of school districts, WestEd analyzed publicly available

single-year budgets and multiyear projections (MYPs) for 25

California school districts that were selected to be represen-

tative of the range of sizes, types, and regions of California

school districts.3 To check if districts that tend to have higher

levels of revenues also tend to forecast the same budget issues

as districts in the 25-district sample, MYP analyses were also

conducted for two additional samples: 15 school districts that

have high unduplicated student counts (74–98 percent of the

district’s enrollment is from targeted groups)4 and 15 Basic

Aid school districts.5

In addition, WestEd conducted interviews with district and

county leaders involved in WestEd’s Smarter School Spending

Community of Practice, as well as interviews with chief busi-

ness officers from districts across the state. (Additional infor-

mation on how this paper was developed is in the Appendix.)6

Purpose

The purpose of this paper — the first in a two-part series —

is to provide a detailed picture of the fiscal pressures that

districts face and to outline the implications of the Silent

Recession for school districts. The second paper builds on this

urgent matter and offers budget strategies and approaches

that school districts may use to mitigate these pressures. The

implications include tradeoffs faced by districts, potential

effects on collective bargaining and broader conversations

with the public about the budget, and the implications for

deficit spending and for achieving the Local Control Funding

3 Each district is required to submit to its county office of education a single-year budget and a multiyear projection of its budget along with

its Local Control and Accountability Plan by July 1 each year. These multiyear projections include information on the next three budget

years.

4 The term unduplicated student counts refers to the total number of English learner (EL) students, low-income students, and foster youth in

the district. Unduplicated students may also be referred to as targeted student groups because school districts receive additional funding

to target the educational needs of these students, as explained further in the Funding for K–12 Education in California section of this paper.

5 The term Basic Aid school district refers to a district in which local property tax revenues exceed the amount that the district would receive

from the state under California’s education funding formula.

6 WestEd has received support from the Bill and Melinda Gates Foundation through the Smarter School Spending project, which

provides school districts with tools and strategies to align investments, to prioritize investments based on the districts’ goals for student

achievement, and to evaluate program success relative to student outcomes. This paper is part of the project’s body of work, as the paper

captures some of the discussions that occurred through a WestEd-facilitated Smarter School Spending Community of Practice, and is

intended to be a potential resource for school district budget leaders.

Formula legislation’s key goals of closing the budget gap and

the achievement gap.

In particular, this paper draws attention to the rising cost of

pensions and to other fiscal pressures on school districts

in an effort to broadcast these issues so they are no longer

silent. These are complex budget issues that are difficult to

explain to the public, but they can be of significant impact

and importance to maintaining academic and fiscal solvency

for many school districts in California, as well as elsewhere.

Many school districts will be forced to navigate formidable

budget choices ahead, and this paper is written from the

assumption that it is easier to foster authentic engagement

and transparent conversations with the public about these

choices when there is a shared understanding of current

budget realities. Importantly, the current budget challenges

in many districts are not new and are not due solely to exter-

nal pressures. Rather, they are part of a larger story about how

district leadership, including local governing boards, have

historically made budget decisions — in some cases deferring

difficult budget choices — and about the increasing demands

placed on the education system and the levels of funding

provided for California school districts over time.

Although this paper briefly addresses some of the broader

issues related to the adequacy of school funding in California,

it does not delve deeply into the debate about whether the

funding gap is caused by the adequacy of K–12 education

funding in California. Rather, this paper is intended to serve as

a springboard for discussions about how districts are dealing

with current budget realities.


Funding for K–12 Education in California

The passage of the Local Control Funding Formula (LCFF)

legislation in 2013 dramatically transformed California’s

education funding system.7 The LCFF gives greater local

control to school districts based on the idea that those who

work most closely with students are better situated to make

spending decisions (i.e., “subsidiarity”) and in order to increase

equity in school funding and provide districts with additional

funding to increase and improve services for students with

the greatest needs. The LCFF gave school districts greater

flexibility in spending decisions in exchange for greater budget

transparency through the requirement that each local educa-

tion agency (LEA) create a Local Control and Accountability

Plan — with input from the community — that details how

the district will allocate funds to meet its goals for improving

student outcomes.

Under the LCFF, the bulk of the funding that the state provides

to each school district is based on the district’s average daily

attendance (ADA), referred to as base grant funding. In addi-

tion, the LCFF designates that school districts may receive

supplemental funding and concentration funding from the

state. Supplemental funding is based on unduplicated student

counts (meaning students from targeted populations): English

learner (EL) students, low-income students,8 and foster youth

in the district; and the state provides concentration funding

to a district if more than 55 percent of the district’s enroll-

ment is from these targeted student populations. Importantly,

school districts must demonstrate that they are increasing or

improving services for the student populations that generated

the supplemental and concentration funds.9 Consequently,

school districts that receive more supplemental and concen-

tration funding are working to use such funds to address the

needs of targeted students and may experience greater pres-

sure from stakeholders to show that the additional dollars are

7 https://www.wested.org/resources/path-toward-equity/

8 Defined by eligibility for the federal Free and Reduced-Price Meals program.

9 As discussed in a later section of this paper, school districts that find they must cut services, even services to targeted student groups, due

to rising fiscal pressures may need to focus on strategies to improve services to students during times of budget constraint. According to

a 2013 report (http://www.lao.ca.gov/reports/2013/edu/lcff/lcff-072913.aspx), “Under the LCFF, districts will have to use supplemental

and concentration funds to ‘increase or improve services for EL/LI pupils in proportion to the increase in supplemental and concentration

funds.’ The exact meaning and regulatory effect of this proportionality clause is currently unknown.” Some stakeholders in the education

community remain concerned about the absence of explicit requirements regarding how districts increase or improve services for

targeted student groups.

improving outcomes and helping to eliminate the achieve-

ment gap for the targeted student groups.

The passage of the LCFF coincided with California’s recov-

ery from the Great Recession, which meant that the LCFF

formula was used to determine how most of the significant

increases in funding for K–12 education resulting from the

state’s post-recession economic growth were distributed.

However, much of the increased funding simply offset the

15–20 percent budget reductions and the suspension of cost-

of-living adjustments in state and local funding that school

districts had experienced previously, between 2008/09 and

2011/12. While the LCFF provided a mechanism to distribute

funding to K–12 education, it was not intended and does not

operate as an adequacy formula — it is not meant to deter-

mine how much money would be adequate for meeting the

state’s student outcome expectations for each district. Instead,

increases in funding for K–12 education related to the LCFF

were based on a commitment to returning school districts to

pre-recession levels (2007/08), adjusted for inflation.

Notably, the LCFF formula provides for revenues that grow

by cost-of-living adjustments each year based on a general

measure of the growth in cost for governmental agencies

that is inclusive of, but not limited to, education. In other

words, the LCFF generates revenue increases without refer-

ence to actual growth in the costs that are specific to oper-

ating schools. However, as of April 2018, the state legisla-

ture is considering new legislation (introduced by assembly

member Al Muratsuchi, from Torrance) to increase the LCFF

target to provide school districts with additional funding to

cover rising fixed costs (e.g., pensions, fuel, maintenance) —

a bill directly focused on addressing the adequacy of state

funding for education.

https://www.wested.org/resources/path-toward-equity/

http://www.lao.ca.gov/reports/2013/edu/lcff/lcff-072913.aspx


Since the LCFF was enacted, revenue for K–12 education has

increased steadily from a statewide average of $8,987 per

pupil in 2013 to $10,657 per pupil in 2017.10 In particular, those

school districts with large populations of EL, low-income, and

foster students have experienced the largest increases in fund-

ing. Statewide in 2017/18, school districts received $1.4 billion

more in LCFF funding than in the previous year, and K–12 reve-

nue is expected to continue to increase through 2020/21.11 In

fact, Governor Jerry Brown’s January 2018 budget proposal

includes nearly $3 billion to fund full implementation of the

LCFF in 2018/19, two years ahead of the schedule that had

been previously set for fully funding the LCFF.

However, by design, not all school districts have experienced

the transition to the LCFF equally. The demographics of a

10 http://www.lao.ca.gov/Publications/Report/3549; in inflation adjusted dollars

11 http://www.lao.ca.gov/Publications/Report/3670 - Proposition.A098_Overview

12 http://www.ppic.org/publication/implementing-californias-school-funding-formula-will-high-need-students-benefit/


district determine how much is generated from the supple-

mental and concentration components of the LCFF. As a

result, districts of similar size, but different demographics,

may receive considerably different per-pupil funding under

the LCFF.12 The variation in per-pupil funding rates and local

contextual factors (e.g., enrollment growth or decline, age of

workforce, size of the district) affect how different districts

will experience the significant projected increases in pension

costs. According to the Legislative Analyst’s Office, pension

costs will constitute an estimated 30–40 percent of future

LCFF funding growth. In some cases, districts are already

experiencing increases in pension costs that exceed their

LCFF funding growth (Figure 1).13

Figure 1. Increased pension expenditures outpace LCFF revenue increases in some districts

For this sample school district in 2017-18 (San Bernardino Unified), salary-related expenditure increases will outpace

LCFF revenue increases by $10.9 million.

Source: Authors’ representation of data provided by the San Bernardino Unified School District

http://www.lao.ca.gov/Publications/Report/3549;%20in%20inflation%20adjusted%20dollars

http://www.ppic.org/publication/implementing-californias-school-funding-formula-will-high-need-students-benefit/



FISCAL CHALLENGES

14 https://edsource.org/2017/state-new-teachers-to-pay-more-to-shore-up-state-teachers-pension-fund/576481

This section includes a description of the increasing pressures

on school district budgets, as well as the difficult choices

faced by school district leaders and the community at large.

Specifically, these fiscal challenges include pension liabilities;

special education costs; costs associated with recruiting,

retaining, and training teachers; employee health care costs;

aging facilities; and declining enrollment.

Pension Liabilities

For California — as for many other states — the rising cost of

pension obligations presents a serious challenge, particularly

for school districts. There are two major pension funds for

employees in K–12 education in California: the California State

Teachers Retirement System (CalSTRS) and the California

Public Employees’ Retirement System (CalPERS). CalSTRS,

which administers pension benefits for teachers, principals,

and other certificated employees such as speech therapists,

school psychologists, and nurses, is the nation’s second-larg-

est public employee pension fund. CalPERS provides pension

benefits for classified employees such as classroom aides,

school security officers, and food services, maintenance, and

clerical staff. To provide benefits to their members, CalSTRS

and CalPERS funds rely on contributions from members,

employers, and the state, as well as income from invest-

ments. Unfunded pension costs are the difference between

the benefits promised to employees and the current savings

available in the funds to meet those financial commitments. It

is this unfunded liability that has driven dramatic increases in

the amount that school districts must contribute to the funds.

The value of funds in CalPERS and CalSTRS fell dramati-

cally during the 2008 recession and has never fully recov-

ered. In response, California’s 2014/15 budget included a

plan to fully fund CalSTRS within about 30 years by more

than doubling district contribution rates between 2013/14

and 2020/21 — from 8.3 percent of each district’s payroll in

2013/14 to 19.1 percent of payroll by 2020/21 (Table 1). The

state will also have to increase its contribution to the fund to

make up for the shortfall. According to EdSource, increased

payments from the state will likely have a trickle-down effect

on districts as well. “Money for pensions will divert funding

from other priorities at a time when Brown is predicting

slower state revenues and the possibility of a recession.”14 As

one district budget leader interviewed for this report stated,

“Issues with the CalSTRS and CalPERS, that is huge…. When

you look at how much increase it is every year . . . there’s no

way that it can be sustainable the way it’s going, because

your base dollar that comes in, it gets eaten up already by

just your additional increase in your CalSTRS and CalPERS

already.” Another district budget leader explained that the

rising cost of pensions — outpacing increases in funding —

will force school districts to reduce services for students.

When the state adopted the Local Control Funding Formula,

it made a promise to restore the 07/08 purchasing powers

of school districts…. And then a year later they passed the

STRS and PERS Reform Acts, which pretty much invalidated

that promise. There’s no way a school district can get back

to those purchasing levels with all of these new mandated

payments. So they should have adjusted the LCFF base targets

when they changed PERS and STRS because there was a new

cost that was never factored in when they set the targets. So,

we’ve been saying . . . for several years that students are going

to get fewer services because much of the new money is

going to go to employees’ deferred compensation.

This concern over rising costs — particularly for CalSTRS and

CalPERS — exceeding increases in revenues was repeated by

many of the district leaders interviewed for this report.

https://edsource.org/2017/state-new-teachers-to-pay-more-to-shore-up-state-teachers-pension-fund/576481


Table 1. Large increases in K–12 districts’ pension contribution rates

2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21

Rates:

CalSTRS 8.3% 8.9% 10.7% 12.6% 14.4% 16.3% 18.1% 19.1%

CalPERS 11.4% 11.8% 11.8% 13.9% 15.8% 18.7% 21.6% 24.9%

Statewide Total School District Contributions (in millions):

CalSTRS $2,086 $2,463 $3,120 $3,840 $4,478 $5,305 $6,203 $6,862

CalPERS $1,122 $1,104 $1,214 $1,509 $1,710 $2,006 $2,341 $2,734

Totals $3,208 $3,567 $4,334 $5,349 $6,188 $7,311 $8,544 $9,596

Source: http://www.lao.ca.gov/Education/EdBudget/Details/82

15 http://www.pewtrusts.org/en/research-and-analysis/issue-briefs/2017/04/the-state-pension-funding-gap-2015

A 2017 report by the Pew Charitable Trust reveals that many

other states’ pension systems are faced with addressing

growing and significant pension obligations.15 The report

indicates that the gap between the assets of state pension

systems across the United States and the benefits promised

to employees — referred to as the net pension liability — was

$1.1 trillion in 2015 and was expected to increase by approxi-

mately $200 billion in 2016.

WestEd’s analysis of districts’ annual budgets illustrates

the varied impact of the increases in CalSTRS and CalPERS

costs on district budgets. For one district, its contribution to

CalSTRS was 57 percent higher from one year to the next

(Figure 2). These increases represent millions of dollars in

increased contributions for some districts. The average

increase across the 25 districts in WestEd’s sample was

16 percent for CalSTRS, or just under $1.5 million in increased

contributions on average, and 19 percent for CalPERS, or just

under $0.5 million in increased contributions, on average. Yet,

the steepest increases in district contributions to these funds

are still to come.

http://www.lao.ca.gov/Education/EdBudget/Details/82

http://www.pewtrusts.org/en/research-and-analysis/issue-briefs/2017/04/the-state-pension-funding-gap-2015


Figure 2. Nearly every district in the sample is expecting large increases in CalSTRS and CalPERS expenditures

between 2016/17 and 2017/18

16 http://www.lao.ca.gov/reports/2013/edu/special-ed-primer/special-ed-primer-010313.aspx

17 https://dq.cde.ca.gov/dataquest/

18 http://www.ppic.org/content/pubs/report/R_1116LHR.pdf

Source: Authors’ analysis of annual budget reports from sample districts

Special Education Costs

Districts also struggle to cover the increasing costs of special

education programs. As student needs and the costs of

meeting those needs continue to rise, providing appropri-

ate support to meet the needs of students with disabilities

is an ongoing concern for districts. The LAO estimates that

the cost of educating students with disabilities is, on average,

twice as much as the cost of educating general education

students.16

In 2016/17, California enrolled over 680,000 K–12 students

eligible for special education services, or approximately

11 percent of all K–12 students in the state.17 As with other

areas of K–12 funding, the funding provided to districts for

special education services has grown based on a modest

cost-of-living adjustment, yet funding for special educa-

tion has generally lagged behind the overall K–12 funding

increase. The increases to special education funding have

not matched the escalating cost of maintaining high-quality,

legally compliant services.18

One source of increased costs has been from greater aware-

ness of and investment in programs to support students with

a primary disability of autism. Although autism was once

considered a high-cost, low-incidence disability, California’s

population of students with a primary disability of autism

http://www.lao.ca.gov/reports/2013/edu/special-ed-primer/special-ed-primer-010313.aspx

https://dq.cde.ca.gov/dataquest/

http://www.ppic.org/content/pubs/report/R_1116LHR.pdf


has increased from fewer than 40,000 students to more than

100,000 students over the last 10 years (2006/07 to 2016/17).19

The total number of special education students in California

has also increased during this same period, from 679,602

students to 754,277 students, while overall K–12 enrollment in

the state has decreased.20

Each student with a disability, as a regularly enrolled student,

generates LCFF funding for a district and additionally gener-

ates funding for the district through the AB 602 formula,

which distributes 80 percent of the state’s special education

funds. This formula, like the LCFF, is based on the total enroll-

ment numbers of all students within each Special Education

Local Planning Area (SELPA); it is not based on the number

of students with disabilities. A 2016 Public Policy Institute of

California (PPIC) report asserts that this current system for

funding special education in California provides widely differ-

ent rates of funding for local districts.21

Special education spending in California public schools totals

over $12 billion annually. The largest share (62 percent) of

the funding comes from local school district sources. AB

602 state sources provide 29 percent of the funding, and the

federal government provides 9 percent. According to PPIC’s

2016 report, “The number of students with [individualized

education plans] (IEPs) and their share of the school popula-

tion began to increase in 2010 after many years of being rela-

tively flat. At the same time, overall K–12 student attendance,

which drives funding, did not rise. As a consequence, total

state funding for students with special needs has fallen in

both nominal and constant dollars.”22 This reduction in avail-

able dollars to support the needs of students with disabilities

has further increased pressure on district budgets.

As one county leader reported to WestEd staff during an inter-

view for this paper, the combination of declining enrollment

and increasing special education costs has put enormous

pressure on some districts: “Our declining enrollment takes

19 Ibid. (This report also notes that California’s autism caseload increased 5.4 times between 2001/02 and 2013/14.)

20 https://data1.cde.ca.gov/dataquest/

21 http://www.ppic.org/content/pubs/report/R_1116LHR.pdf

22 http://www.ppic.org/content/pubs/report/R_1116LHR.pdf (p. 7)

23 https://learningpolicyinstitute.org/sites/default/files/product-files/A_Coming_Crisis_in_Teaching_REPORT.pdf

24 Estimates from the Learning Policy Institute’s September 2016 report suggest only around a third of teachers who exit the profession ever

return. Also see http://www.ppic.org/content/pubs/op/OP_601EBOP.pdf.

down our special education revenue. And our special educa-

tion costs are just soaring with autism and additional social,

emotional-type needs. And so that’s kind of a big one that is

different for every district, but they’re all experiencing larger

encroachments because they’re not getting more money

from the federal government. They’re not getting more

money from the state government. So, it’s coming down

to the local dollars and the unrestricted dollars too to fund

more and more of that piece.” As this county leader suggests,

special education costs exceed the funding provided by the

state and federal governments, a circumstance also stated by

other district budget leaders.

Another district leader interviewed for this paper expressed

concern over the unpredictable nature of special educa-

tion costs in his district. “In Special Ed the costs are so crazy,

variable, and unpredictable…. You can wind up having a

non-public school placement. We can have settlements,

we can have kids that come in that are extremely expen-

sive to educate and not get the funding back from the state….

In Special Ed, like within a week, we can wind up spending

hundreds of thousands of dollars of money that we didn’t

anticipate…. And that’s a challenge.” The unpredictable nature

of special education costs was also cited by several other

district budget leaders as one of the challenges in managing

rising costs in their districts.

Costs Associated with Recruiting, Retaining, and Training Teachers

According to the Learning Policy Institute, 8 percent of

all teachers in the United States, or approximately 200,000

teachers, leave the profession each year.23 Moreover, attrition

rates are much higher than 8 percent for new teachers and

for teachers in high-poverty schools and school districts.24

Attrition in the teaching workforce comes at a high cost to

school districts in California and nationally. At the national

https://data1.cde.ca.gov/dataquest/



https://learningpolicyinstitute.org/sites/default/files/product-files/A_Coming_Crisis_in_Teaching_REPORT.pdf

http://www.ppic.org/content/pubs/op/OP_601EBOP.pdf


level, the cost of replacing teachers who leave the classroom

is more than $8 billion annually. The cost to replace individ-

ual teachers ranges from $10,000 in rural and small subur-

ban districts to $20,000 or more in urban districts.25 Some of

these costs are driven by investments in professional devel-

opment for the teachers who enter the district to fill positions

that have been vacated. Another “cost” of the teacher short-

age is in terms of an increase in the number of teachers who

are entering the profession with waivers, permits, and intern

credentials. In other words, they have not necessarily had full

preparation to handle the challenges associated with teach-

ing, which may also impact the quality of student learning.

Often, districts must resort to long-term substitute teach-

ers in the scramble to fill all of the district’s vacancies. Many

school districts across California are struggling to recruit and

retain enough teachers to fill all of their vacancies, particu-

larly in high-poverty, urban, and rural school districts. Teacher

vacancies are also greater for science, mathematics, and

special education.26

These shortages have led to competition among some

school districts to attract teachers through higher wages.

Some school districts in which the shortages are the most

acute have gone further to incentivize prospective teachers

to come to the district. For example, the Natomas Unified

School District has offered to cover most of the cost of teacher

credential programs and provides free use of a MacBook and

a bonus payment to teachers who live in the district. The

district also provides $5,000 in signing bonuses to bilingual

and minority teachers. The Natomas district projects a cost

of over $800,000 for its three-year recruiting effort.27 Similarly,

the Golden Plains Unified School District, a district of fewer

than 2,000 students, offered a $3,000 signing bonus for all

new teachers in 2016/17. This signing bonus was increased to

$5,000 for new hires in 2017/18, with new bilingual teachers

receiving a $7,300 bonus.28 Other districts offer to pay moving

expenses for teachers coming into the district, or match the

25 https://www.huffingtonpost.com/entry/we-can-solve-teacher-shortages-heres-how_us_59114ac7e4b056aa2363d899 and https://

www.washingtonpost.com/news/answer-sheet/wp/2017/09/18/where-have-all-the-teachers-gone/?utm_term=.9c9dda6654f2

26 https://learningpolicyinstitute.org/product/ca-district-teacher-shortage-brief

27 http://www.sacbee.com/news/local/education/article181911096.html

28 https://edsource.org/2017/outside-the-limelight-rural-schools-face-challenges-in-finding-and-keeping-teachers/579426


salaries of veteran teachers from the previous districts of

the incoming teachers. These bonuses represent substantial

investments by school districts that are already struggling to

cover other costs.

Employee Health Care Costs

The costs of providing health care benefits for employees

and for retirees have also increased, and many districts do

not have the funds set aside to cover the growth in these

costs. Nevertheless, nearly all school districts in California

provide benefits to current employees (covering medical,

dental, and optometric costs either in part or in full, depend-

ing on the district, at least until employees turn 65), and about

two-thirds of the state’s school districts also provide health

benefits to retired employees.

According to the LAO, districts are now spending about twice

as much on retiree health benefits as they did in the early

2000s, and the LAO notes, “This added cost pressure comes

at a time when districts are facing other pressures — most

notably, rising pension costs and expectations to enhance

services for low-income students and English learners.”

Based on districts’ annual audit reports, the LAO calculated

an unfunded liability for retiree health benefits alone of $24

billion statewide.29

However, the same report from the LAO indicates that only

a few large urban districts account for most of the unfunded

liability. These districts have unfunded liabilities ranging from

$3,800 up to $27,000 per pupil, while the average unfunded

liability for all other districts in the state is approximately

$1,500 per pupil. Yet, even $1,500 in additional funding per

pupil represents a substantial cost for districts that currently

receive about $10,657 per pupil on average in state funding.

WestEd’s analysis of the general sample of 25 districts reveals

that between 2016/17 and 2017/18 alone, 10 of these school

districts anticipate an increase of at least $0.5 million in their

https://www.huffingtonpost.com/entry/we-can-solve-teacher-shortages-heres-how_us_59114ac7e4b056aa2363d899

https://www.washingtonpost.com/news/answer-sheet/wp/2017/09/18/where-have-all-the-teachers-gone/?utm_term=.9c9dda6654f2

https://www.washingtonpost.com/news/answer-sheet/wp/2017/09/18/where-have-all-the-teachers-gone/?utm_term=.9c9dda6654f2

https://learningpolicyinstitute.org/product/ca-district-teacher-shortage-brief

http://www.sacbee.com/news/local/education/article181911096.html

https://edsource.org/2017/outside-the-limelight-rural-schools-face-challenges-in-finding-and-keeping-teachers/579426



health-related expenditures, with 7 of these 10 anticipating

the increase to exceed $1 million. In 2016/17, these districts

ranged in enrollment from fewer than 3,000 students in one

district to more than 53,000 students in another. Moreover,

the average increase in spending on health-related expenses

between 2016/17 and 2017/18 among the sample of 25 school

districts is approximately $800,000, representing a 4-percent

increase in just a single year.

Aging Facilities

Another looming cost to California school districts is the

cost to repair, replace, and modernize school facilities. Many

districts have delayed costly repairs to school sites due to a

lack of funding to support these efforts. A policy research

paper by the Center for Cities and Schools at the University

of California, Berkeley, identified an “ongoing, structural

pattern of inadequate and inequitable spending in many

school districts” on K–12 public school facilities in California.

Consequently, more than half of the school districts in

California continue to underspend on facilities each year,

resulting in costly repairs and health and safety risks in some

cases. The paper also identified that school districts serv-

ing higher numbers of low-income students “spent less on

capital outlay per student and more on maintenance and

operations per student than districts serving higher-income

students…. This means school building operations cost more

in these poorer districts, leaving fewer dollars for education

programs.”30 As the costs of aging facilities increase, districts

are left with fewer dollars overall, creating further pressure on

their already constrained budgets.

To meet industry standards for facilities, schools would need

to spend on maintenance and improvements an amount each

year that is equivalent to about 7 percent of what it would

cost to replace each building, according to a 2016 report by

the Center for Green Schools, the National Council on School

Facilities, and the 21st Century School Fund. In California,

such maintenance and improvement costs would translate

30 http://citiesandschools.berkeley.edu/uploads/Vincent__Jain_2015_Going_it_Alone_final.pdf

31 https://kapost-files-prod.s3.amazonaws.com/published/56f02c3d626415b792000008/2016-state-of-our-schools-report.

pdf?kui=wo7vkgV0wW0LGSjxek0N5A

32 http://www.lao.ca.gov/handouts/education/2017/School-Facilities-033017.pdf

33 http://www.lao.ca.gov/reports/2015/budget/school-facilities/school-facilities-021715.aspx

into an additional $6.7 billion, or $1,083 per student, each year.

Yet, California is not alone in the inadequacy of spending for

facilities. The report ranks California’s spending — $806 per

student on maintenance and operations in 2013 — as being

“average” in a nation of what it calls “underspenders.”31

A 2017 report from California’s Legislative Analyst’s Office

(LAO) confirms the existence of a gap in funding for facil-

ities — specifically, a gap between what is necessary to

address the facilities needs of local school districts and what

the state has proposed under a new bond measure passed

by voters in 2016.32 According to the report, the governor’s

$655-million bond proposal “would clear the $370 million in

already approved school projects awaiting funding [but] only

$285 million would be available to address the remaining $2

billion in projects on the acknowledged list.” The LAO has

raised concerns about funding for facilities in California previ-

ously as well. In 2015, the LAO wrote the following:

Many groups over the years have raised serious

concerns with the state’s current school facilities

program. Notably, the existing program fails to

treat school facility costs as an ongoing expense

despite the recurring nature of facility needs, allows

disparities based on school district property wealth,

fails to target funding according to greatest need,

results in excessive administrative complexity, and

lacks adequate accountability mechanisms.33

To raise additional dollars for school facilities, districts can go

to their local voters for approval of general obligation bonds.

However, voter willingness to approve such bonds varies

by city and region, and this willingness is not necessarily

in accordance with school district need. According to an

Ed-Data analysis of local school facilities funding, “With nota-

ble exceptions, large urban districts or districts with relatively

few businesses and high concentrations of lower-income

families have more difficulty generating support for schools.

This circumstance results in inequities that are outside the

http://www.facilitiescouncil.org/ncsf-home/

http://www.facilitiescouncil.org/ncsf-home/

http://www.21csf.org/csf-home/

http://citiesandschools.berkeley.edu/uploads/Vincent__Jain_2015_Going_it_Alone_final.pdf

https://kapost-files-prod.s3.amazonaws.com/published/56f02c3d626415b792000008/2016-state-of-our-schools-report.pdf?kui=wo7vkgV0wW0LGSjxek0N5A

https://kapost-files-prod.s3.amazonaws.com/published/56f02c3d626415b792000008/2016-state-of-our-schools-report.pdf?kui=wo7vkgV0wW0LGSjxek0N5A

http://www.lao.ca.gov/handouts/education/2017/School-Facilities-033017.pdf

http://www.lao.ca.gov/reports/2015/budget/school-facilities/school-facilities-021715.aspx


scope of the Serrano v. Priest guidelines for more nearly

equal treatment of taxpayers and of students.”34

The district chief business officers (CBOs) who were inter-

viewed for this report detailed the difficulty of keeping up with

the rising cost of facilities. One CBO focused specifically on

the challenge of raising revenue locally through general obli-

gation bonds to cover the gap between local needs and state

funding for facilities. Giving an example, the CBO noted the

difficulty of covering the costs associated with aging facilities

as well as the rising costs of basic utilities such as water and

electricity. “Although we may be getting an increase with the

Local Control Funding Formula, $4 million of our new money

is already spoken for…. That doesn’t even include utilities and

facility needs…. It’s just a real challenge that our base funding

is not adequate to cover all of our needs.” Similarly, another

CBO talked about the need to maintain and modernize aging

facilities through a $10-million project in a district with an

annual budget of $100 million. To fund the project, the district

plans to ask the community to pass a new bond measure

while the district is still paying off an earlier bond. The CBO

recognized that getting support for the new bond would be

difficult. “It’s going to be a tough sell…. Our high school, our

infrastructure system is like 50 years old. It was built back in

1967, I believe. And we still have the old infrastructure…. So

that, right now, what we’re doing is that project, regardless if

we have a bond or not, we have to fix it.” From the experience

of these CBOs, there simply is not enough state funding or

local borrowing capacity to keep up with the demands of

maintaining or replacing their district facilities.

Declining Enrollment

Under the LCFF, funding for school districts in California is

directly tied to enrollment as measured by average daily

attendance (ADA). Over the last 20 years, California has had a

relatively flat level of student enrollment, and the Department

of Finance projects a decline of 181,000 students over the

next decade. While the overall enrollment is declining in the

majority of California school districts, there are some areas

with more significant declines in student enrollment. The

34 https://www.ed-data.org/article/School-District-Bond-and-Tax-Elections

35 http://www.dof.ca.gov/Forecasting/Demographics/Projections/Public_K-12_Graded_Enrollment/

Department of Finance projects that enrollment will decline

in 28 of 58 counties by 2026/27, including 18 counties that will

lose 5 percent or more of their enrollment. Ventura and Santa

Cruz Counties are each projected to lose over 10 percent of

their K–12 enrollment by 2026/27. In the same time period,

Orange County and Sonoma County are each projected

to lose over 14,000 students, while Los Angeles County is

projected to lose nearly 120,000 students.35

Enrollment has declined since 2014/15 in 11 of the 25 districts

in the general sample analyzed for this report (Table 2).

Although reductions in the actual number of students were

not particularly substantial, the decline in enrollment still

represents a loss of spending power and economy of scale

for these districts. With state funding at approximately $10,657

per pupil, a reduction of even 55 students equates to a loss

of over half a million dollars for a district. Yet, declines in

enrollment are not uniform across districts. Accordingly,

school districts may benefit from tools to accurately

project student enrollment changes, as well as a flexible

state policy environment so that district leaders can antic-

ipate changes in funding and adjust classroom, staffing, and

budgeting allocations accordingly.

https://www.ed-data.org/article/School-District-Bond-and-Tax-Elections

http://www.dof.ca.gov/Forecasting/Demographics/Projections/Public_K-12_Graded_Enrollment/


Table 2. Changing enrollment in sample districts, 2014/15 to 2016/17

2014/15 2015/16 2016/17 Enrollment Change % Change

District 21 9,277 8,900 8,782 -495 -5.3%

District 5 10,921 10,632 10,362 -559 -5.1%

District 19 16,935 16,702 16,426 -509 -3.0%

District 24 14,996 14,736 14,554 -442 -2.9%

District 2 1,936 1,916 1,881 -55 -2.8%

District 1 32,938 32,454 32,004 -934 -2.8%

District 11 23,947 23,885 23,696 -251 -1.0%

District 10 22,258 22,205 22,039 -219 -1.0%

District 13 53,365 53,303 53,152 -213 -0.4%

District 12 28,999 28,719 28,958 -41 -0.1%

District 16 9,914 9,948 9,904 -10 -0.1%

District 3 14,768 14,754 14,778 10 0.1%

District 6 62,888 62,767 63,061 173 0.3%

District 9 2,482 2,545 2,505 23 0.9%

District 23 42,339 42,462 42,769 430 1.0%

District 17 15,584 15,717 15,772 188 1.2%

District 18 3,353 3,424 3,397 44 1.3%

District 15 31,954 32,255 32,425 471 1.5%

District 20 20,415 20,530 20,779 364 1.8%

District 4 11,259 11,374 11,547 288 2.6%

District 14 6,349 6,511 6,579 230 3.6%

District 8 37,318 38,070 38,705 1,387 3.7%

District 22 6,555 6,714 6,814 259 4.0%

District 7 11,204 11,438 11,722 518 4.6%

District 25 1,982 2,040 2,188 206 10.4%

Sample District Totals 493,936 494,001 494,799 863 0.2%

Statewide Totals 6,235,520 6,226,737 6,228,235 -7,285 0%

Source: https://dq.cde.ca.gov/dataquest/



A decline in enrollment can also mean that districts do not

require as much funding to meet current student needs. For

example, the district may not need to hire as many teachers,

counselors, or staff. Yet, reductions in funding in response to

declines in student enrollment are complicated by several

factors. First, when district enrollment declines, the district’s

fixed costs (e.g., heating, lighting, maintenance) then consume

a larger share of the budget and districts do not generally see

declines in demands for specialized programs such as special

education and English learner supports (see the Increasing

Special Education Costs section for additional detail). In

addition, certain adjustments can be difficult to scale to the

reduction in the number of students. For example, a reduc-

tion of 6 students per grade level may not be enough to allow

for reducing the number of teachers. If the district loses 30

students in a single grade level, however, staffing reductions

— and therefore cost savings — may be more straightforward

for the district.

In addition to experiencing declining enrollment caused by

shifts in the number of school-age children, many California

school districts have experienced enrollment declines as

students exit the traditional public school system for charter

36 http://www.ccsa.org/understanding/numbers/

37 https://www.edweek.org/media/2016/12/29/school-finance-education-week-quality-counts-2017.pdf

schools. The number of charter schools has increased each

year, as has the number of students enrolled in charter

schools. Currently, there are over 1,200 charter schools in

California, with approximately 630,000 enrolled students.

Charter school enrollment now represents nearly 10 percent

of the state’s overall student enrollment. Furthermore, charter

schools are expected to continue to increase enrollment by

nearly 30,000 students in California in 2017/18.36

Increased enrollment in charter schools in California contrib-

utes to reductions in school district budgets. When students

leave their district to attend a local charter school, state fund-

ing follows them out of the district.37 With the state’s per-pu-

pil funding at approximately $10,657 per student, a loss of

enrollment of 30,000 students equates to a loss of nearly

$320 million in funding for California’s school districts.

http://www.ccsa.org/understanding/numbers/

https://www.edweek.org/media/2016/12/29/school-finance-education-week-quality-counts-2017.pdf


IMPLICATIONS OF THE SILENT RECESSION

38 https://siepr.stanford.edu/sites/default/files/publications/17-023.pdf

The fiscal challenges outlined in this paper are a clear sign

that many California school districts face a tough road ahead

with wide-ranging implications for students, community,

staff, and district leadership. Moreover, several of the fiscal

challenges outlined in this paper tend to have a dispropor-

tionately negative impact on high-poverty districts with

larger concentrations of at-risk student groups. These costs,

therefore, have the potential to exacerbate inequities in fund-

ing at the same time that the Local Control Funding Formula

(LCFF) is designed to make funding more equitable.

Importantly, the current budget challenges faced by a number

of California school districts cannot be wholly explained by

external pressures and rising costs. Rather, some districts have

put off difficult budget choices (such as spending on school

facilities) and have struggled to communicate the implica-

tions of budget and collective bargaining decisions to the

community and other key stakeholders. Furthermore, in some

districts, decisions about the budget have been complicated

by the decisions of local school board members who have

failed to heed the advice of chief business officers (CBOs) and

other district leadership about the need for fiscal constraint.

Other school districts have faced their budget challenges

directly, suggesting the need to reduce this variation across

districts and move more consistently toward better deci-

sion-making across all of California’s school districts.

Outlining these fiscal challenges and the variety of responses

to them, as well as raising awareness about these challenges,

are critical to helping decision-makers and the public under-

stand the ways in which districts, with increasing constraints

on their budgets, will likely be pushed to conduct business

differently in the future. Laying out the challenges ahead may

also help to highlight where districts can plan for growing

costs that are outside of the districts’ control. For example,

many commentators have noted that pension costs, which

are largely outside of the control of district leaders, will likely

reduce investments in current employees and programs,

effectively crowding out other investments.38

Tradeoffs

Such crowding out means that school districts may be forced

to make tradeoffs as they balance competing costs and adjust

to constrained revenues. District leaders will need to consider

how to make spending (and cutting) decisions, while keep-

ing their goals for student success at the center of their deci-

sion-making process. Yet, district leaders must also contend

with having limited control over some of the rising costs. Figure

3 is a conceptual framework for exploring the level of control

that districts have over these encroaching costs and their rela-

tive impact on district budgets. The framework is intended to

represent the range of controls and costs among districts, since

district costs and — in some cases — level of control are impacted

by local factors. For example, enrollment remains steady in some

districts in California, while other districts are disproportionately

impacted by declines in enrollment and the resulting reductions

in state funding provided to these districts.

The framework is also intended to help district superinten-

dents, CBOs, and policymakers pinpoint where districts may

need additional support from the state in order to make

changes, and where they have greater control over district

expenditures. For example, districts have little control over

costs such as their rising contributions to pension funds,

which have a large impact on district budgets. However,

districts may have more control over facilities costs, where

planned investments in maintenance may reduce potentially

larger expenditures in the future.

The second paper in this series, in development for publica-

tion in 2018, focuses on budget strategies and addresses those

strategies that fall into the upper-left circle in the framework

shown in Figure 3. These are strategies over which districts

have greater local control and which have the potential to

make a substantial impact on district budgets.

https://siepr.stanford.edu/sites/default/files/publications/17-023.pdf


Figure 3. Districts have varying degrees of control

over rising fiscal pressures, and some fiscal pressures

have a disproportionate impact on district budgets

39 http://www.ed-data.org/

40 According to the California School Boards Association, “The General Fund includes both a restricted and unrestricted portion. We often

refer to the General Fund unrestricted as the ‘fund of last resort’ because it is where most of the district’s discretionary dollars reside. The

majority of all salaries and benefits, on average approximately 84% of the district’s expenditures, reside in the General Fund.”

(http://csba.org/TrainingAndEvents/~/media/CSBA/Files/TrainingAndEvents/AllEvents/MastersInGovernance/Course3_

FIN/2014_07_SchoolFinanceTerms.ashx)

Since employee salaries and benefits represent such a

large share of district budgets (approximately 82 percent

in California in 2015/16),39 the tradeoffs that districts make

will almost certainly include decisions about how much to

invest in salaries and benefits for employees. The tradeoff

between investing in employee costs versus other costs has

implications for each district’s ability to compete with other,

better-resourced districts and with other industries to attract

quality staff. It also will likely impact whether districts are able

to provide livable wages for employees, allowing them to

live in the communities in which they teach. General Fund40

expenditures on employees have continued to climb over

the years, driving up total expenditures in districts across the

state (Figure 4).

http://www.ed-data.org/

http://csba.org/TrainingAndEvents/~/media/CSBA/Files/TrainingAndEvents/AllEvents/MastersInGovernance/Course3_FIN/2014_07_SchoolFinanceTerms.ashx

http://csba.org/TrainingAndEvents/~/media/CSBA/Files/TrainingAndEvents/AllEvents/MastersInGovernance/Course3_FIN/2014_07_SchoolFinanceTerms.ashx


Figure 4. Increase in employee costs over time for California school districts

Note: Examples of “Other Post-Employment Benefits” include retirement incentives, tax-sheltered annuities, and deferred compensation. Source: California Department of Education; data retrieved from http://www.ed-data.org/ on January 8, 2018

41 https://www.cde.ca.gov/fg/aa/lc/lcfffaq.asp

42 WestEd researchers analyzed the unrestricted funds because these funds indicate a district’s fiscal solvency.

43 The analysis of each district’s MYP was unable to distinguish between the use of ongoing funds versus one-time funds by the district,

which may impact the net increase/decrease for the school district’s budget over time.

The crowding out caused by increasing employee-related

costs and other expenses will also impact the types of

programs and services that districts are able to provide. With

fewer General Fund dollars available, districts may have to

reduce some of the resources offered to children and fami-

lies. These decisions must be made in light of the LCFF’s

requirement to use supplemental and concentration funds

to “increase or improve” services for targeted student groups,

and may be influenced by pressure from advocacy groups to

ensure that these funds reach the students they are intended

to serve, as well as being driven by education leaders’ desire

to close achievement gaps.41

Deficit Spending

WestEd’s analysis also indicates that the current fiscal pres-

sures have pushed many school districts into deficit spend-

ing. Specifically, for all of the 55 districts selected for this

paper’s analyses, WestEd determined the net increase or

decrease in each district’s unrestricted funds, according to

the districts’ multiyear projections (MYPs).42 The MYPs for

all but three of the districts in this sample indicate that the

districts’ unrestricted expenditures will exceed revenues in

at least one of the three years following the current budget

year, and more than half of the school districts in the sample

anticipate that expenditures will exceed revenues in all of the

next three years (Figure 5).43 Table A3 has additional details

$23B $23B $23B$24B

$26B

$27B

$7B $7B $7B $8B$8B

$9B

$4B $4B $5B $5B$5B

$5B

$2B $2B $2B $2B $3B$3B

http://www.ed-data.org/

https://www.cde.ca.gov/fg/aa/lc/lcfffaq.asp


on the net increase or decrease in unrestricted funds for the

sample districts.

Figure 5. Sample districts’ expectations for future

expenditures and revenues

A majority of 55 sample districts do not expect revenues to cover expenditures over the period of 2017/18 to 2019/20.

Source: Authors’ analysis of multiyear budget projections from sample districts

Since the LCFF provides additional funding to districts that have a

high proportion of students from targeted student populations

(also known as unduplicated student counts, as noted earlier),

WestEd analyzed the net increase or decrease in unrestricted

44 Based on data from http://ias.cde.ca.gov/lcffsnapshot/lcff.aspx as of February 22, 2018

45 A school district is considered Basic Aid if local property tax revenues exceed the amount that the district would receive under California’s

education funding formula.

funds in the MYPs for a sample of 15 districts that were selected

for having among the highest proportions of targeted students

(ranging from 74 percent to 98 percent of the total number of

students in these districts).44 Ten of these 15 districts project

that their unrestricted expenditures will exceed their revenues

in at least one of the three years following the current budget

year, and 6 of these districts anticipate that their revenues will

exceed expenditures in all of the next three years.

WestEd also analyzed MYPs for a sample consisting of 15

Basic Aid school districts, a type of district that tends to have

high revenues.45 Thirteen of the districts in the Basic Aid

sample anticipate that their expenditures will exceed reve-

nues in at least one of the next three years, and two-thirds

of these districts project that their expenditures will exceed

revenues in all of the next three years.

These analyses indicate that even among districts that are

benefitting most from the state’s new funding formula and

among districts that might be considered better off financially

due to their property tax base, most of these districts expect

that their expenditures will outpace revenues. At the same

time, most of these districts also project healthy ending fund

balances, with only one district projecting a negative fund

balance in 2019/20.

WestEd’s analyses also indicate that deficit spending is

projected despite the fact that many school districts plan to

make substantial reductions in expenditures over the next

three years. In addition, districts have several strategies at

their disposal in the short term to deal with revenue shortfalls,

including using short-term Tax Revenue Anticipation Notes

(TRANs) and borrowing funds from other funding sources or

from their reserves. However, these strategies do not address

more serious structural deficits, with expenditures continuing to

exceed revenues even during more favorable economic times.

http://ias.cde.ca.gov/lcffsnapshot/lcff.aspx


LOOKING AHEAD: STRATEGIESTo extend the topics covered in this paper, WestEd is conduct-

ing interviews with chief business officers (CBOs) and other

district leaders from across the state. The purpose of these

interviews is to gather information on the strategies that CBOs

are using to mitigate the Silent Recession and preserve qual-

ity educational programs for students. As one state education

leader observed, it is the ability and willingness of districts

to make difficult decisions that “will impact the opportunities

and outcomes for students as much external cost pressures.”

Findings from these interviews will be included in a second

paper that is in development for publication in 2018.

WestEd will explore these strategies in light of the goals of

the Smarter School Spending project. The project’s goals —

stronger alignment between fiscal services and programs,

improved planning and decision-making, and prioritizing

investments that provide the greatest benefit for students

— provide a critical lens through which to view the strate-

gies outlined by CBOs and the potential impact on district

budgeting, operations, programs, and ultimately, students.

WestEd researchers anticipate that the strategies suggested

by CBOs will fall into several broad categories that corre-

spond to the goals of the Smarter School Spending project

and that include increasing effectiveness (which requires

stronger alignment between fiscal services and programs)

and prioritizing investments that provide the greatest benefit

for students and increase efficiency (which requires improved

planning and decision-making). The following paragraphs

describe these strategies in broad terms.

Increase Effectiveness

In times of fiscal constraint — when districts have to make

more difficult choices about where to invest limited dollars

— measuring the return on investment (ROI) provides district

leaders with information on how to direct resources to invest-

ments with the highest returns. As part of this work, district

leaders may need to continue eliminating silos that separate

the budget office and program offices to ensure collection of

the right data to measure ROI, as well as continuing to ensure

appropriate monitoring and response to the data.

Increase Efficiency

Times of fiscal constraint also require that districts find ways

to increase efficiencies within their systems, stretching avail-

able dollars so that they have the greatest impact. While the

analyses conducted for this paper indicate that districts are

relying on strategies such as deficit spending, interviews have

revealed numerous other strategies that districts have also

begun to employ to more efficiently use resources. These

strategies include a focus on marketing the district to the

community to increase enrollment, as well as closer budget

monitoring, particularly as it relates to staffing and eliminat-

ing unfilled positions that do not support core classroom

functions.

COMMUNITY UPDATE FROM THE

BERKELEY UNIFIED SCHOOL DISTRICT

January 16, 2018

A series of economic and fiscal conditions and factors

are putting pressures on school district budgets across

the State of California. One of these is the fact that

there have been several years in which state education

funding has not kept pace with expenses. Furthermore,

the mandate for funding state employee pensions has

risen significantly (an estimated $1.3 million annual

increase for Berkeley each year through 2020–21),

and school districts have needed to address employee

compensation after several lean years during the Great

Recession (2007–12).

Serve High-Need Students

Another set of strategies aims to address the supports and

opportunities provided to high-need students such as those

from low-income backgrounds, English learners, foster

youth, and/or those with disabilities. Consideration of how

resources are used to direct supports to these student popu-

lations is vital. It is also important that school districts are


clear about the use of both base, supplemental, and concen-

tration funds as a way to meet the needs of targeted student

groups, as well as the needs of the entire student popula-

tion. These strategies may include investments in programs

and supports from a school district’s base and supplemen-

tal/concentration resources as well as strategically including

state and federal resources to target support to lower-per-

forming student groups.

Respond to Change

Another component of both increasing efficiency and effec-

tiveness within school districts is the ability to respond to

change. Yet, for a variety of reasons, school districts have not

always been quick to respond to shifts in the demographics

of schooling or reductions in available funding.46 For example,

school districts are subject to collective bargaining rules that

may make it difficult to make expedient changes in staffing

during periods of declining enrollment. In addition, reduc-

tions in enrollment may necessitate school mergers or even

the sale of school district property, both of which can take

considerable time and may be politically difficult as well as

painful for the community. Consequently, school districts

tend not to be particularly nimble when it comes to fluctua-

tions in funding due to enrollment.

Use Data and Communication as Tools

There are several core underpinnings to many of the efforts

that districts undertake to address budget challenges, includ-

ing a strong focus on data collection and monitoring (both

program and budget), and on continuous improvement, or

measuring program effectiveness and making adjustments

as needed. In addition, districts might benefit from focusing

more on communication with the public and with existing

teachers and staff about the districts’ need to make diffi-

cult tradeoffs. Collective bargaining can be a contentious

process in many districts, even during healthier budget peri-

ods. School districts will likely need to continue to commu-

nicate with the public and with employees about current

budget challenges and about the implications for collective

bargaining with teachers and other school site staff. (See the

46 https://www.crpe.org/sites/default/files/crpe-better-together.pdf

Community Update from the Berkeley Unified School District

sidebar as an example.) This communication can require a

greater degree of transparency surrounding the budget,

something that policymakers intended the Local Control and

Accountability Plan to provide for the public, but has not been

wholly achieved. Moreover, it often requires district leaders

to be willing to make difficult choices, to be clear about the

rationale for their decisions with staff and with the public, and

to ensure that fiscal stewardship is prioritized in the district

before the district is in fiscal crisis.

Communication with the public about the pension liabil-

ity is likely to be particularly important for many districts.

Pension costs are different from typical district spend-

ing because paying for pensions supports instruction only

indirectly. Furthermore, pension plans are often complex,

involving varying levels of member contributions, diffi-

cult-to-understand investment earnings and forecasts, and

differing accounting and disclosure practices. Calculating

pension expenses and assets is mathematically complex and

involves a set of predictions regarding employee turnover

and mortality, length of employee service, the frequency of

early retirement, and future salary and compensation levels, as

well as predictions about the future health of the economy. Yet,

messages about the pension liability are increasingly highlighted

in the news and in district budget conversations. Therefore,

despite the complexity of communicating with the public about

employee pensions, it will likely become increasingly important

for district leaders to intentionally bring the public into these

conversations and build understanding about the importance

of pension costs to district finances.

https://www.crpe.org/sites/default/files/crpe-better-together.pdf


A PATH FORWARDAs this paper indicates, increases in funding under the Local

Control Funding Formula (LCFF) were based on a commit-

ment to returning school districts to pre-recession funding

levels (2007/08), adjusted for inflation. The funding formula

also provides some growth in revenue each year. And

this accomplishment should be acknowledged and cele-

brated as California’s continued commitment to the impor-

tance and power of public education for the state’s future

growth. However, this growth in revenues is not based on

actual growth in the costs of operating a school or school

district. This paper outlines how these growing costs and

the associated growth in expenses required to simply main-

tain operations are placing increasing financial pressure on

school districts — the effects of what can be called the Silent

Recession.

At the same time, Governor Brown’s January 2018 budget,

which includes a proposal to fully fund the LCFF more quickly

than previously planned, has the potential to provide some

degree of relief for school districts as they face the loom-

ing budget crisis created by the rising costs outlined in this

paper. Governor Brown’s proposal also includes $55 million

for county offices of education to assist local school districts

identified for assistance under the state’s new accountabil-

ity system (known as the “system of support”). This infusion

of funding to county offices of education may also increase

their ability to provide fiscal support to local districts. In addi-

tion, the magnitude of the education system’s pension liabil-

ity problem has led to three legal cases that are headed to

the California Supreme Court to challenge current pension

reform law.

Yet, regardless of the outcome of the new budget or pend-

ing litigation, the Silent Recession will continue to constrain

district budgets into the foreseeable future. Therefore, school

district leaders must continue to engage in discussions

internally and externally about how to most effectively and

efficiently leverage their resources in order to realize their

goals for improving student outcomes. The Silent Recession

is likely to demand new strategies in order for school districts

to be able to continue working toward creating the type of

education system that all children deserve.


APPENDIXMethodology

The development of this paper grew out of discussions among

California school district and county budget and education

services leaders, representing three school districts and two

county offices of education, who were involved in WestEd’s

Smarter School Spending Community of Practice (CoP) from

February 2016 to June 2018, which was funded by the Bill and

Melinda Gates Foundation. WestEd researchers began devel-

oping this paper by conducting a review of news articles

outlining the fiscal pressures facing California school districts

in August 2017. Next, researchers facilitated a more formal

discussion among CoP members about the current budget

challenges in their districts and counties. Following this

discussion, WestEd researchers invited each of the members

of the CoP to participate in a 45- to 60-minute interview

about the most pressing budget challenges they were facing

and the strategies they were employing to mitigate some of

these rising costs. All members of the CoP participated in the

interviews with the exception of one district, which opted

instead to send in written responses to interview questions.

WestEd staff decided to expand the interview pool to include

an additional group of chief business officers (CBOs) to gather

greater insight into the most pressing issues facing school

districts and to better understand the types of strategies that

districts are employing to navigate these increased costs.

Many of the CBOs were selected based on having worked

with WestEd in the past and being considered by WestEd

staff to take a reflective and strategic approach to budgeting.

Other CBOs were selected in order to ensure that the sample

of interviewees represented the full range of sizes, types, and

regions of California school districts. WestEd sent invitations

to 25 school districts and 3 county offices of education to

participate in an interview. In response, budget and educa-

tion leaders from a total of 17 school districts and 3 county

offices of education, including CoP members, were inter-

viewed for this paper. Most interviews were conducted with

a single interviewee, but some were done in a small-group

format with 2–4 interviewees.

For all of the districts that were invited to participate in the

interviews — 25 districts total — WestEd staff analyzed the

multiyear projections (MYPs) and annual budgets from June

2017. These budget documents are publicly available through

the districts’ board meeting notes or the districts’ websites.

Financial data available for the state through Ed-data.org was

also used to supplement the analyses of district budgets.

Specifically, it was used to determine increases in employee

costs over time.

Because two particular types of districts — those with a

high percentage of students from targeted student groups

(high unduplicated student counts) and Basic Aid districts

— tend to have higher revenues than other districts, WestEd

researchers conducted an additional review of a sample of

districts in each of these two categories. For districts with high

unduplicated student counts, WestEd staff randomly selected

15 districts that had at least 70 percent of their student popu-

lation consisting of students from targeted student popula-

tions (English learner students, low-income students, and

foster youth). In the randomly selected sample of 15 such

districts, the unduplicated student counts ranged from being

74 to 98 percent of total district enrollment. WestEd staff also

randomly selected 15 districts from among those designated

as Basic Aid districts, meaning that each district’s local prop-

erty tax revenues exceed the amount that the district would

receive from the state under California’s education funding

formula. WestEd was not able to find the MYPs for all of the

districts that were randomly selected for these samples in an

initial round of selection, so WestEd staff randomly selected

from the list again until enough districts with publicly avail-

able MYPs were selected.

Tables A1, A2, and A3 provide more details about the sample

districts that were analyzed for this paper.

Limitations

Although the samples were selected to be representative, they

might not fully represent all districts in California or in other

states, particularly because the CBOs who were interviewed


were selected intentionally for their perceived approach to

budgeting. Moreover, the sample of districts used to inform

this paper is relatively small (California has nearly a thousand

school districts in all), and school district revenues and

expenditures vary considerably from district to district based

on many factors.

Table A1. Breakdown of sample by district size

2016/17 Enrollment # of Districts

0–5,000 26

5,000–10,000 8

10,000–15,000 6

15,000–35,000 10

35,000+ 6

Total 55

Source: https://dq.cde.ca.gov/dataquest/

Table A2. Increasing cost of CalSTRS and CalPERS

CalSTRS/CalPERS Unrestricted General Fund

CalSTRS CalPERS

2016/17 2017/18 % Increase 2016/17 2017/18 % Increase

District 2 $667,069.93 $1,049,749.66 57% $266,893.66 $370,620.90 39%

District 20 $9,980,861.00 $12,750,733.00 28% $2,936,764.00 $3,666,851.00 25%

District 8 $10,239,998.00 $12,566,764.00 23% $3,868,589.00 $4,169,333.00 8%

District 5 $16,939,690.00 $20,751,118.00 22% $6,727,263.00 $7,635,445.00 14%

District 23 $21,052,110.00 $25,288,797.00 20% $5,915,504.00 $6,770,560.00 14%



CalSTRS CalPERS

2016/17 2017/18 % Increase 2016/17 2017/18 % Increase

District 14 $7,449,482.11 $8,859,756.30 19% $2,000,509.61 $2,378,787.38 19%

District 4 $5,203,619.41 $6,121,133.00 18% $1,677,284.33 $1,961,259.28 17%

District 12 $14,566,684.00 $17,122,664.00 18% $3,498,953.00 $3,953,707.00 13%

District 22 $3,207,061.62 $3,733,877.34 16% $1,132,229.60 $1,305,041.95 15%

District 1 $16,546,872.34 $19,065,592.46 15% $3,642,961.55 $4,219,295.48 16%

District 19 $7,299,576.00 $8,409,450.00 15% $2,112,022.00 $2,951,373.00 40%

District 15 $5,182,361.10 $5,963,867.00 15% $1,454,281.05 $1,627,884.00 12%

District 13 $5,576,288.00 $6,386,890.00 15% $1,170,226.00 $1,390,380.00 19%

District 17 $31,601,497.00 $36,123,824.00 14% $6,644,948.00 $7,819,341.00 18%

District 3 $10,206,634.00 $11,591,691.00 14% $2,862,099.00 $3,392,642.00 19%

District 11 $2,807,544.00 $3,182,321.00 13% $1,159,622.00 $1,356,564.00 17%

District 9 $11,556,000.00 $13,089,000.00 13% $2,400,000.00 $2,697,000.00 12%

District 16 $5,034,398.00 $5,701,553.00 13% $1,705,323.00 $1,960,994.00 15%

District 10 $27,518,581.86 $30,796,891.22 12% $6,432,349.53 $7,939,353.89 23%

District 25 $785,849.36 $874,153.37 11% $317,389.96 $384,245.00 21%

District 24 $5,818,721.28 $6,458,587.31 11% $2,648,941.29 $3,202,993.03 21%

District 21 $4,860,785.00 $5,368,041.00 10% $1,324,637.00 $2,026,592.00 53%

District 6 $12,279,725.00 $13,507,837.00 10% $3,208,346.00 $4,132,212.00 29%

District 7 $1,165,441.29 $1,116,119.60 -4% $268,978.05 $297,474.94 11%

District 18 $1,713,802.17 $816,400.00 -52% $439,813.47 $482,200.00 10%

Source: Multiyear budget projections from sample districts


Table A3. Net increase/decrease in fund balances for unrestricted funds

# of districts % of districts that project to deficit

spend in all 3 years

% of districts that project to deficit spend in 2 of next

3 years

% of districts that project to deficit spend in 1 of next

3 years

Districts in the general sample 25 52% 16% 16%

Districts with high unduplicated student counts

15 40% 13% 13%

Basic Aid districts 15 67% 13% 7%

Source: Authors’ analysis of sample districts’ multiyear projections


SILENT RECESSION

WHY CALIFORNIA SCHOOL

DISTRICTS ARE UNDERWATER

DESPITE INCREASES IN FUNDING

Kelsey KrausenJason Willis

APRIL 2018

Documents

Silent Recession – Why California School Districts are ... · Silent Recession: Why California School Districts Are Underwater Despite Increases in Funding page 6 Funding for K–12